Social Security benefits are a critical source of income for millions of Americans during retirement. Many depend on these payments to maintain their quality of life after they stop working. However, your Social Security payments might not be as large as you expect.
This can happen due to certain decisions made along the way. Here are three common reasons why your Social Security checks might be smaller and what you can do to maximize your benefits.
1. Working Less Than 35 Years
Your Social Security benefit is calculated based on an average of your highest-earning 35 years. The Social Security Administration takes your annual earnings over these years, adjusts them for inflation, and then calculates your monthly benefit using a specific formula. This figure is called your “primary insurance amount.”
If you don’t work a full 35 years, the missing years will count as zeros in the formula, which reduces your average and ultimately lowers your benefit. For example, if you only worked for 30 years, the calculation will include five years of zero income, which can have a significant impact on your payments.
What You Can Do
To avoid this reduction, aim to work at least 35 years before you retire. If you haven’t reached that threshold, consider working a few extra years, especially if your earnings have increased over time. Even part-time work could help reduce the effect of any zero-income years.
2. Claiming Benefits Before Your Full Retirement Age
The age at which you decide to claim Social Security has a direct impact on the size of your payments. You can start claiming benefits as early as age 62, but this will permanently reduce your monthly payments. On the other hand, if you wait until your full retirement age (FRA), you can receive your full benefit. Your FRA depends on the year you were born, but for most people, it’s around age 67.
For example, the average Social Security payment for someone filing at FRA is about $1,884 per month, according to 2023 data. However, if you claim at age 62, that amount drops to an average of $1,298 per month—a difference of nearly $600. That reduction is permanent, meaning you’ll receive smaller checks for the rest of your life.
What You Can Do
If possible, try to wait until your full retirement age to start claiming Social Security. If you can delay even further, up to age 70, your benefit will continue to grow. However, if you need the money earlier, be sure to plan for the smaller payments by adjusting your budget or savings.
3. Paying Taxes on Your Social Security Benefits
Another factor that can reduce your Social Security payments is taxes. While 41 states do not tax Social Security benefits, federal taxes might still apply, depending on your income level. The key figure here is your “provisional income,” which is half of your Social Security benefits plus your adjusted gross income and any non-taxable interest.
If your provisional income exceeds certain thresholds, a portion of your Social Security benefits could be taxed. For single filers with a provisional income of more than $25,000, or joint filers with more than $32,000, up to 50% of their benefits could be taxed. If your provisional income is even higher, up to 85% of your benefits could be subject to taxes.
What You Can Do
To minimize the tax burden, consider adjusting your retirement withdrawals or income sources. Roth IRA withdrawals, for example, don’t count toward your provisional income, which might help you stay under the taxable thresholds. If most of your retirement savings are in tax-free accounts, you may be able to reduce or eliminate the taxes on your Social Security benefits.
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Take Control of Your Social Security
Social Security is a vital part of retirement planning, but understanding how your choices can affect your benefits is essential. By ensuring you work at least 35 years, waiting until your full retirement age, and managing your taxes, you can maximize your Social Security payments and enjoy a more secure retirement.
Eliot Pierce is a dedicated writer for ChiefsFocus.com, covering local crime and finance news. With a keen eye for detail and a passion for storytelling, Eliot aims to provide his readers with clear and insightful analysis, helping them navigate the complexities of their financial lives while staying informed about important local events. His commitment to delivering accurate and engaging content makes him a valuable resource for the community.